How large companies react to the crisis

March 9th, 2009 by Patrick Stähler

The current crisis could be a great start to rethink your business, but large companies do the opposite. Besides the usual and essential task to save cash they push their business units into more controlling and reporting of the existing business.

Today, I had a long chat with an executive from a business unit in a large company. We talked about the reaction of the headquarters to the financial crisis which is hitting his business hard. He is very busy in the moment to cut unnecessary costs and to save cash wherever possible. At the same time he is spending a lot of time with customers to find new projects. Besides pressure on the margin customers have canceled orders but his position is still better than of his competitors due to his excellent customer relation.

At the same time he feels that his business model is too similar to the strategies of his competitors. In good times that was not a problem since the market was great since there was more demand for his product than the industry in total could have supplied. The happy days are over and now he feels that besides the necessary steps to save cash he has to change his business model to become more unique.

At the same time headquarters becomes nervous and demands more and more reports and forecasts. He is arguing that he cannot forecast his sales on a quarterly figure since his own customers face high uncertainty in their markets as well. The only response is more pressure and more reports to fill out from headquarters. The support units from headquarters scan all available market studies and tell him what the augur say. And so he is filling out the reports knowing that he should concentrate on his business, particularly on sales activities and a new business model instead of pleasing headquarters. But he knows that the survivors of the crisis are the ones that can manage headquarters well.

Typical behavior in the crisis

I think we see here a typical behavior that is pretty common for large corporations.

  1. The more uncertain the future is the more companies try to rely on numbers and figures of their existing business regardless if they are of any value. Managers cling to the figures as if they could save them from uncertainty instead of building a business model that can either cope with uncertainty in itself or finding a new business model that lets them create a new uncontested market.
  2. In good times headquarters manages its business units at arms-length even if the business is not outperforming its competitors due to lack of differentiation in its strategy.
  3. In dire times headquarters interferes much more into the business even when it is performing better than the benchmark.
  4. Headquarters interference is less of a help to the operational manager than a pain. Instead of decreasing overhead in dire times headquarters tries to find a new raison d’être by creating more reports and better forecast instead of helping to find new customers and new uncontested markets.

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